Microfinance: More talk than credit

It could get somewhat confusing. An article in this week’s issue of The Economist has declared microfinance not just a success but also profitable enough for top tier microlenders to manage on their own. Yet, I found out last week in Sariaya, Quezon, the vegetable farmers that government has targeted for special attention are still dependent on traditional 5/6 lenders and indebted to seed and fertilizer dealers and middlemen.

There is no doubt that microfinance is in vogue these days, and that’s probably why the Nobel Peace Prize was awarded to Mohammad Yunus, the grand daddy of microfinance and founder of the Grameen Bank that pioneered the concept in Bangladesh. According to The Economist, there are now some 10,000 microfinance institutions lending an average of less than $300 to 40 million poor borrowers worldwide.

I need no convincing about the virtues of microfinance myself. When I was forced out of media by martial law, I found myself working for PCI Bank when Ramon "Ray" Orosa was president and the late Tony Vasquez was VP for Corporate Affairs. Between Ray and Tony, innovation was the prevailing mantra. They were determined to turn banking as it was known then, on its head.

Market research told us what we already knew: The banking system was ignoring a large portion of the Philippine public. There was money to be made by designing services to reach the masa and there is the added bonus of doing something to help free the ordinary man from the clutches of the traditional 5/6 money lender.

Our research showed that the market vendor didn’t want to deal with the banks because banks are too impersonal and bankers in coats and ties are too intimidating for someone who smelled of fish and meat and didn’t wear shoes. This was how the PCI Bank Moneyshop came to be. It was based in the market, it lent and collected money by having someone going to the stalls everyday like the 5/6 usurer but charged interest at a much lower rate.

For the rural folks, we put up the Center for Social Credit under Armando Baltazar who joined us fresh from rural reconstruction work. A social credit loan is pretty much what a microfinance loan is today… small, meant to finance livelihood projects to augment family income and without any collateral other than the word of honor of a group to which the borrower belonged. It was also here where I first met Say Tetangco, so I know he is aware of this project.

I lost track of these projects after I moved out of PCI Bank. Apparently, the projects died a natural death after Ray Orosa was eased out in a mid-70s corporate tussle. The next time I heard about microfinance was years later and no matter how they described what it is, it still sounded like the short-lived baby of Ray Orosa and Tony Vasquez.

So now it is fashionable and respectable even among traditional bankers. But I get the impression that traditional bankers are just giving it lip service, treating microfinance as a corporate social responsibility project rather than as a mainstream service that any self respecting bank in a third world environment should have. After all, as The Economist points out, it is highly profitable.

During this year’s reception traditionally hosted by the BSP Governor for the banking industry, Gov. Amando Tetangco said in his speech that he wishes "to commend the banking sector for its growing support for microfinance, our special advocacy for alleviating poverty in our country. Latest data indicate that there are more than 200 banks providing microfinance services to 630,000 micro-borrowers with total loan portfolio of P3.7 billion. The average is P11,600 per borrower, more than double the 2006 figure of about P5,000 for each borrower."

Naku naman Say!!! Ang baba ng kaligayahan mo! A portfolio of P3.7 billion for 200 banks is nothing. How can you be happy enough to urge the gathering to "thank these banks for their support through another round of applause!"

In fact, the early success of microfinance here and abroad is no thanks to the traditional banks. Credit should go to non-bank foundations that provided grants, loans and training to untested microcredit institutions. The banks, with the exception of PCI Bank under Ray Orosa, shunned the risk — out of ignorance, a lack of expertise and fears that the poor would prove to be bad credit risks. Thank the pioneering work of Ray and non bank donors for what microfinance has achieved here today.

Another good example of a microfinance pioneer in the Philippines is Gina Lopez of ABS-CBN Foundation, another non-banker. Gina stumbled into microfinance because of her earlier endeavor to save battered children in Bantay Bata. She found out that the tension in the homes of these battered children can partly be traced to economic problems. She found out too that helping the mothers with a small livelihood loan can help bring down the problems that lead to battered wives and children.

ABS-CBN Bayan Foundation, Gina’s microfinance arm, has so far provided low-interest loans accumulating to over P3 billion and supported some 50,000 active clients, most of them housewives or women borrowers in over 254 municipalities all over the country. They are now focusing on promoting the culture of entrepreneurship and increasing the pool of the country’s small businessmen through their training programs, scholarships and skills workshops.

Microfinance is essential if we are to finally make our agricultural sector more productive and at the same time release much of the social tensions that have gripped our peasantry for centuries. No program to improve agricultural productivity can be viable in the long term unless the financial requirements of our small farmers are addressed.

Luckily, Agriculture Secretary Art Yap does not think like the typical bureaucrat and more like the entrepreneur in carrying out his programs. By doing so, he is able to view the problems of the farmers, who are in reality entrepreneurs themselves who worry about business things like financing.

Art Yap divided his staff into five commodity clusters (rice, corn, high value crops, livestock and poultry and fisheries). Microfinance Point Persons for each commodity cluster h ave submitted a detailed list of targeted priority areas that need credit down to the barangay level.

Agriculture Usec Berna Romulo-Puyat explains that they "are linking target sites with the partner bank and non-bank institutions of DBP. DBP will ask their partner bank and non bank institutions to prioritize the DA’s priority areas. Interest rates are based on market rates which is about 20 to 24 percent a year (lower than the traditional 5/6 which charges six percent a month)."

USec Berna says it is the basic role of the agriculture department to identify and link the farmers and fisherfolk with the microfinance conduits. It is important for government to take a step backward here because "experience has shown repayment is low or next to nothing (becomes a dole out) when it is perceived that the government is the one lending."

Usec Berna also revealed that "DA is partnering with Globe’s text a payment wherein farmers and fisherfolk can pay their loans weekly thru text.   This lowers transaction costs and enables microfinance conduits to reach more microfinance clients." 

Hopefully, this DA initiative works. As for the traditional bankers, hopefully they would do more microfinance to match the talk one hears from them extolling their small present commitments. Hopefully, BSP Governor Say Tetangco would also be more demanding and less easy to please in the matter of the big banks’ microfinance commitments.

Right and wrong

From Robin Tong.

What’s the difference between complete and finished?

When you marry the right woman, you’re complete.

When you marry the wrong woman, you’re finished.

Boo Chanco’s e-mail address is [email protected]